Accusations at hearing fuel frustration over gas prices

Monday, June 19th 2000, 12:00 am
By: News On 6

CHICAGO (AP) -- Oil and ethanol industry executives blamed each other for rising gas prices Monday at a congressional hearing
designed to examine why drivers are paying more than $2 a gallon in cities such as Chicago and Milwaukee.

Few left the special hearing convened by Illinois Democrats with much hope for a resolution.

"I think this could be a serious situation throughout the summer," said Eric Vaughn, president of the Renewable Fuels Association, a Washington-based group representing ethanol producers.

One oil industry spokesman blamed higher local taxes, noting that Chicagoans are paying more than 50 cents in total taxes per gallon. He also said new mandates to use reformulated gas with ethanol in Chicago and Milwaukee have contributed to the price

Ethanol, made from corn and subsidized by a federal tax break, burns cleaner than other fuels.

"I'm not knocking ethanol. It's a good product," said David Sykuta, executive director of the Illinois Petroleum Council. "But
it's a logistical nightmare to handle this stuff."

For example, he said, gas with ethanol must be transported by truck or train because it damages pipelines. Meanwhile, only about
half of the six refineries in Illinois have been retooled to make gas with ethanol, he said.

In a separate briefing in New York, American Petroleum Institute president Red Cavaney cited "six or seven different variables" for the higher Midwest prices -- everything from ethanol to the increase of crude prices to above $30 a barrel to pipelines that have been out of commission.

But members of the congressional panel, the Environmental Protection Agency and a spokesman for the ethanol industry disputed
the explanations and even accused the oil industry of trying to sabotage ethanol's use as an additive.

Panel members said the industry should be charging no more than an additional 8 cents a gallon for gas that has ethanol in it instead of MTBE, a controversial additive used in most states that some environmentalists believe contaminates water supplies.

Illinois, the nation's biggest ethanol producer, is one of the few states that requires its use as a gas additive. Minnesota, where prices have not exceeded the $2-a-gallon mark, is another.

"I think the oil companies are punishing and gouging us for using ethanol," said Rep. Jan Schakowsky, one of four Illinois Democrats who made up the Congressional panel. "It's the only reason I can come up with to explain why Chicago and Milwaukee are paying 40 cents more a gallon than everyone else."

The meeting came just two days before ministers from the Organization of Petroleum Exporting Countries are scheduled to meet
to discuss raising production by about 500,000 barrels a day -- or about 2 percent of the countries' total production.

But analysts have suggested that even if the increase is approved, it could be several weeks before enough oil is produced to help lower gas prices.

Rep. Luis Gutierrez said he would ask Attorney General Janet Reno to look for any signs of price-fixing in the oil industry. The
Federal Trade Commission is already investigating.

Cavaney, of the American Petroleum Institute, defended the industry, saying it was being blamed as a scapegoat even though no
proof existed of the companies' alleged price manipulation.
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